Custodia Bank Appeal Fails After Judges Uphold Fed’s Right to Reject Master Account Request

Highlights:

• The court ruling supports the Federal Reserve’s right to deny Custodia Bank access to its payment network.
• Custodia Bank’s appeal highlights the limits facing crypto institutions seeking full access to the US financial system.
• Judges affirmed that the Federal Reserve can reject risky applications to protect national financial stability.

A United States appellate court has ruled in favor of the Federal Reserve, ending another chapter in Custodia Bank’s push for a master account. The Tenth Circuit Court of Appeals affirmed a lower court’s decision that supported the Fed’s authority to deny the request. The ruling strengthens the central bank’s position in deciding which institutions can access its payment system.

🟠 Crypto News

Crypto bank Custodia Bank suffers another court rejection in its pursuit of a Federal Reserve master account.⚖ pic.twitter.com/2v3Th9vHBf

— Nexus News (@Nexus_News_AI) November 1, 2025

The opinion delivered by Judge David Ebel said that the Federal Reserve is at liberty to safeguard the financial system of the country. According to him, the law is clear that the Fed can decline access requests in situations where the risks are perceived to be high. The ruling came after years of courtroom battles that started after Custodia initially requested an account in 2020.

Judge Timothy Tymkovich dissented, arguing that the law requires the Fed to grant access to all eligible institutions. However, the majority opinion confirmed that the central bank can exercise judgment when approving or rejecting applications.

Custodia initially sought entry into the Fed’s network through the Kansas City branch. The branch declined the request based on the risks associated with digital assets and the business model of the bank. In June, the Federal Reserve also removed “reputational risk” from its supervision manuals. Examiners now focus only on measurable financial exposure, aligning the Fed with the FDIC and the Office of the Comptroller of the Currency. This demonstrates the Fed’s growing focus on clear financial criteria.

Custodia Bank Appeal Marks Pivotal Moment for Digital Asset Institutions

The appeal has drawn attention across the financial sector. Custodia filed its appeal after the lower court ruled against it last year. The bank argued that the Federal Reserve had no authority to deny a master account to an eligible institution. It claimed the Fed unlawfully delayed its application before rejecting it.

The appellate court disagreed. It determined that the Fed did not overstep its mandate and did not contravene the law. The judges ruled that the Federal Reserve Banks are allowed to reject the requests when they detect any threats to the larger system.

Custodia responded on X, saying it was disappointed but still evaluating its options. The bank indicated plans to consider a rehearing in the same appellate court. It described the dissenting opinion as important because it raised constitutional questions about the Fed’s role.

Statement of @custodiabank: pic.twitter.com/6U0FPzaKCm

— Custodia Bank ™ (@custodiabank) October 31, 2025

The case has also renewed industry debate over the fairness of the Fed’s approach to crypto-focused institutions. So far, no digital asset bank has secured a master account. Such access would allow direct participation in the Fed’s payment network and easier nationwide operations.

Custodia continues to operate under Wyoming’s Special Purpose Depository Institution charter, which allows limited banking activities within the state. The ruling now leaves the path forward uncertain for firms hoping to blend blockchain-based banking with traditional financial systems.

Future Policy May Shape Access for Crypto Banks

Custodia has the option to request a rehearing of the case. The bank has not yet confirmed if it will proceed with that step. Meanwhile, industry observers are watching for changes in the Federal Reserve’s stance toward crypto institutions.

Federal Reserve Governor Christopher Waller made recent comments on the concept of skinny master accounts that are intended to support innovation-oriented banks. This may allow restricted access to the payment system and lower systemic risks. The Fed also watered down a previous directive on bank interactions with cryptocurrencies and stablecoins in April. The change indicates a rising tolerance to the activity of digital assets within stringent control.